Revenues up more than 50 percent from year ago, income before taxes more than doubles
Revenues were $829.7 million for the quarter, up 51 percent from 2005's $547.9 million, and income before income taxes was $86.2 million, up nearly 105 percent from $42.1 million a year ago. Cooper Cameron Chairman, President and Chief Executive Officer Sheldon R. Erikson noted that the year-over-year increase in revenues reflects continuing strength across the Company's markets and the first full quarter's contribution from the Dresser acquisition. The overall market strength was the primary driver of the increase in income before income taxes in the quarter.
Orders outpace revenues, backlog reaches another new record
All three of the Company's business segments posted year-over-year and sequential increases in orders during the first quarter of 2006. Total orders were $1.34 billion, nearly double the $680 million of a year ago. "Cameron recorded the highest single-quarter orders in its history as a result of record bookings of drilling equipment, driven by deepwater rig construction; Cooper Cameron Valves' (CCV) record bookings reflect the addition of the Dresser businesses and continuing strength across its markets; and Compression's orders reached their highest quarterly level since 1999," Erikson said.
The record orders generated another increase in the Company's backlog. The $2.69 billion total at March 31, 2006 was 25 percent higher than the year- end 2005 level of $2.16 billion, and was up nearly 140 percent from the $1.13 billion of a year ago.
Quarter's operating cash flow reflects working capital needs
Erikson said that the Company's cash flow from operations was approximately $3.6 million during the first quarter. "The pace of orders and the increased level of manufacturing activity have resulted in an increase in working capital needs, primarily inventory," he noted. "As a result, the current quarter's operating cash flow is down significantly from recent levels." Erikson said the increased working capital requirements are not unusual given the current activity levels and order inflow, and that he fully expects the Company to internally fund its cash needs for the year, including any acquisitions or stock repurchases that may be undertaken.
Dresser integration remains on schedule, drives CCV revenue gains
"The integration into CCV of the businesses acquired from Dresser remains on schedule," Erikson said. "The first quarter orders and revenues reflect the first full quarter of their inclusion in CCV's results, and we are pleased with the contribution to earnings from these operations in the midst of the integration process." He noted that while CCV's margins are not as high as the pre-acquisition levels due to certain lower-margin backlog in the acquired businesses, CCV's performance is, nonetheless, better than originally expected. With regard to the ongoing integration, Erikson said, "We anticipate the remaining charges associated with the integration process during 2006 will be approximately $34.5 million ($22.4 million after-tax, or $0.18 per share), of which approximately $27.5 million will be cash. There will likely be some modest level of charges recognized in 2007, but the vast majority of the integration will be complete by year-end 2006." He noted that CCV's margins should continue to improve in future quarters as lower-margin backlog is delivered and as anticipated cost savings associated with the acquisition are realized.
Balance sheet healthy, acquisitions and share buybacks remain options
Cooper Cameron's total debt, net of cash and short-term investments, at March 31, 2006 was $166.1 million, up from $88.9 million at December 31, 2005, and the Company's net debt-to-capitalization ratio increased to approximately 9.1 percent. Erikson noted that the Company repurchased 723,700 shares of its common stock during the quarter at an average price of approximately $41.11 per share, and continues to evaluate both acquisition opportunities and share repurchases as uses of cash.
Full-year earnings guidance raised
Erikson said that second quarter earnings are expected to be in the range of $0.40 to $0.45 per share, including charges of approximately $0.11 per share related to the ongoing integration of the Dresser acquisition. He also said the Company now expects earnings per share for 2006 to be in the $2.05 to $2.15 range, up from the earlier guidance of $1.70 to $1.80. The updated full-year guidance includes charges of approximately $0.23 per share (including $0.05 in the first quarter) related to the Dresser integration, while the prior guidance included charges of approximately $0.30 per share. Erikson noted that the reduction in the expected integration charges from the earlier guidance primarily reflects lower-than-expected costs associated with downsizing certain CCV facilities.
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